Parties form consensus on tax avoidance crackdown
Business is braced for a slew of new anti-avoidance measures after the UK general election next month as politicians compete on promises to raise billions of pounds from closing tax loopholes, reports the Financial Times.
A cross-party consensus is emerging over the scope for a renewed crackdown. Last week Vince Cable, the Liberal Democrat business secretary said that “the next government, of whatever persuasion, is going to be pretty brutal on abusive tax avoidance”.
Chuka Umunna, the shadow business secretary told a conference that constituents were “very, very angry indeed” about avoidance by large companies. Nick Boles, Conservative business minister, said there was “further to go” on tackling avoidance by big global corporations.
Many multinationals, particularly in the banking and utilities sectors, are worried by the tone of the debate which they see as hostile and divisive. They fear poorly-designed measures will damage the UK’s reputation as attractive to investment.
But some smaller companies are likely to cheer another crackdown. The British Chambers of Commerce said last month that its members were “frustrated by the small number of their competitors who embark on expensive and complex tax avoidance procedures designed to circumvent the spirit, if not the letter, of our laws”.
Campaigners are also egging the politicians on. An alliance of 17 campaign groups and development charities have drawn up a “tax dodging bill” — a list of anti-avoidance measures aimed at raising £3.6bn of tax in the UK and more overseas, which has been welcomed by the Greens, Labour, SNP and Plaid Cymru.
Jenny Ricks, head of campaigns of ActionAid UK, one of the campaign groups said: “After the election our activists will be keeping up the pressure on the new parliament to deliver — and ensuring the changes will make tax fairer for developing countries as well as the UK.”
The Conservatives, Liberal Democrats and Labour say they want to raise an extra £5bn, £6bn and £7.5bn a year respectively from tackling avoidance and evasion. They have laid out few details, although Labour has said its targets include private equity funds, hedge funds, quoted eurobonds, the “shares for rights” scheme, disguised self-employment and the use of dormant companies.
These targets are highly ambitious. At first sight, they may appear credible given that measures taken by the coalition government to tackle aggressive tax planning, avoidance and evasion are forecast to raise to £7.6bn in additional revenues in 2015 and 2016. But these figures are flattered by a temporary surge in payments from users of tax avoidance schemes who are being forced to pay money upfront.
Official HMRC estimates suggest that avoidance costs just £3.1bn a year, in a sign that politicians would need to target practices that are currently seen as legitimate to raise significant sums.
One likely source of extra revenue are changes to the international corporate tax rules being drawn up by the Paris-based Organisation for Economic Co-operation and Development. Its conclusions were partly pre-empted with this month’s “diverted profits tax” that penalised multinationals putting taxable profits in low-tax countries.
But key aspects of the tax system were not covered by this tax, including the tax-deductibility of interest payments. The CBI employers group responded to the Liberal Democrat manifesto, which suggested changes saying: “Further restrictions on interest deductibility when it is already subject to many anti-avoidance measures risks damaging the competitiveness of the UK to attract capital for investment projects.”
One challenge for the next government will be finding ways to tighten the rules that do not threaten investment. If it is intent on closing the tax gap, it will also need to focus on small businesses and losses from illegal activity — which are five times greater than those from avoidance.
The Institute for Fiscal Studies, an independent think-tank, has warned against claims by the main parties to be able to scoop up “apparently free money” from the rich, non-doms and tax avoiders. Making further advances on tackling avoidance and evasion is likely to be a lot harder than the rhetoric suggests.
